Productivity and Reallocation: Evidence from Ecuadorian Firm-Level Data

Ecuador, a developing small open economy, serves as an important case study for aggregate productivity growth and input reallocation. Since little is known about the economic performance of Ecuador with its crisis and reforms between 1998 and 2007, this paper uses a comprehensive microdata set from Ecuador's National Statistics and Census Institute to study Ecuadorian firm dynamics in that period. We find that the reallocation of factor inputs (2.6 percent) and technical efficiency growth (3.2 percent) on the intensive margin are the dominant sources of aggregate productivity growth. Net entry, as a channel of reallocation on the extensive margin, generally has minor effects (-0.1 percent) and contributes to productivity growth only in the later recovery period (2002-04).